Cash use has been declining for years, but will it ever reach the point where we become an entirely cashless society?

I was in Canada recently and was shocked by how many small restaurants didn’t accept cash. Statistics Canada — the country’s national statistical service — found that only half of the country’s businesses accept cash. Analysis from Moneris shows cash use is in steep decline and set to drop another 70% by 2030, reducing it to 10% of all transactions in Canada. 

Although slower, cash use in the United States is also declining. In 2022, 41% of Americans reported not using cash regularly.

It’s important to clarify that a truly cashless society with no physical money won’t happen soon. Instead, the U.S. (and much of the world) is marching toward an economy where cash use is so limited it becomes a burden rather than a convenience. 

With such a long history of use, why is cash failing now, and what does it mean for businesses, their customers and the payments industry?

Convenience and Speed Drive the Cashless Economy

Modern customer experiences are driving the decline of physical currency and shaping a cashless economy. Today’s consumers expect convenience at every turn, especially when they’re ready to checkout.

At NMI, our research shows that 84% of consumers see speed and convenience as the number one reason for choosing a payment method. It isn’t rewards, fees, safety or any other factor that goes into a given payment — it’s how quick and easy the payment journey is.

So, what does that mean? Surprisingly, ecommerce growth has slowed since the pandemic. Instead of shopping solely online, many consumers (especially those in younger generations) prefer a blend of in-store and ecommerce

However, years of steady digitalization have created new expectations. Consumers returning to brick-and-mortar storefronts expect the same seamless, flexible payment solutions in-store that they’ve come to rely on online. They want more options than just cash or cards.

As a consumer, I don’t want to dig out cash, count it and then put an even bulkier wad of change back in my pocket. I want to tap my phone or smartwatch at the point of sale or skip the line altogether and do a contactless self-checkout. With Gen Z consumers willing to switch brands for a better shopping experience, payment providers will need to find new ways to help their merchant customers succeed in our digital-first economy. 

Unbanked Consumers Need Solutions as Cash Declines

In 2022, cash made up 18% of U.S. transactions, falling into third place behind debit cards (29% of transactions) and credit cards (31% of transactions). However, cashless payments aren’t convenient for everyone. In 2021, nearly six million American households were unbanked, meaning no household member had a checking or savings account. In the same year, nearly 30% of Americans didn’t have a credit card

In short, millions of Americans (and billions of people globally) lack access to banking or traditional card payments.

One of the most important things we can do as an industry is to ensure everyone can make a payment. Thankfully, innovation is pushing us in that direction. This is especially true with peer-to-peer systems, which don’t rely on linked bank accounts. Still, we need to do better. If we, as a society, go cashless, we will need to focus on driving innovation that works for everyone.

In 2016, 60% of unbanked consumers had smartphones. This allowed them to use apps like Venmo and Zelle to make and receive payments. Meanwhile, other systems, like FedNow, require a bank account. However, the speed of FedNow, convenience and low fees may motivate more of the unbanked population to open accounts.

Enabling Merchants To Enable Customers

As omnichannel sales become the norm, offering digital payments is no longer optional for merchants. This means that even brick-and-mortar-only businesses need to be at the cutting edge of payments tech to avoid losing customers to more forward-thinking rivals. However, there are problems with contactless payments that must be solved before providers can attract more merchants.

In the contactless environment, it’s all about convenience-driven innovation through cashless technology. Maybe you’re using your Apple or Samsung watch to make a payment, or perhaps you’re using biometrics to authenticate a transaction. Innovative payment options like digital wallets, biometrics and buy now, pay later (BNPL) drive convenience for the consumer. But what about the merchant?

EMV-compliant contactless terminals can accept cards and payments from NFC (near-field communication) devices like phones, watches and wristbands. However, most EMV card readers are too expensive for the average business owner. For more merchants to use contactless payment solutions, these devices need to be cheaper and more accessible.

Today, a credit card reader can easily cost a merchant $400. Low-cost options are available from companies like Square and Toast, but they’re largely limited. For example, the Toast reader is great, but it only works with Toast, a POS designed for restaurants. For most small- and medium-sized businesses, high price tags and a lack of flexibility make innovation challenging.

Instead of investing in endless proprietary devices, the industry will need to readjust and shift towards more open, all-in-one payment hardware

For instance, with tap on mobile payments, merchants can use their personal smartphones to accept payments instead of purchasing a separate card reader device. As an industry, we need to move toward making cashless or low-cash operations accessible for all merchants. Consumers are going that way regardless, so for merchants, it’s adapt or get left behind. 

Facilitating Seamless Transactions and Financial Inclusion

Sweden may be the first country to become fully cashless, with cash representing just 8% of all in-store purchases in 2020. As consumer buying habits continue to shift in favor of digital experiences, it won’t be long before other countries follow in Sweden’s footsteps. 

However, as we’ve seen, there are issues with fully cashless economies that we, as an industry, will need to overcome. A few examples include:

  • Lack of internet service: Facilitating digital-only payments can be tricky in areas where internet and cellular service is scarce
  • Access to digital devices: In 2016, only 60% of unbanked individuals in the U.S. had a personal smartphone. While that number has likely risen since the study was conducted, cashless economies could put unnecessary stress on underserved and elderly populations who have limited access to digital devices
  • Associated costs: Eliminating cash use would require small businesses to invest in either POS devices or smartphones with tap on mobile capabilities. To pay, unbanked consumers would also have to purchase a device capable of holding funds in a digital wallet. For many underserved individuals and small businesses, the associated costs may be too high to overcome without assistance
  • Issues with traditional banks: In 2021, the top reason cited for not having a bank account was not having enough money to meet minimum balance requirements. This was followed by a lack of trust in traditional banks and an inability to pay high banking fees, according to a recent government survey

Thankfully, innovative companies and governments are finding ways to fill the gap between digital economies and underserved communities. Already, Mexico, India and countries throughout Africa are taking steps to ensure their citizens can successfully make the leap to digital payments.

For instance, India’s Pradhan Mantri Jan Dhan Yojana (PMJDY) program ensures that unbanked citizens can access basic financial services like savings and deposit accounts. These accounts have no minimum balance requirements and offer opportunities to earn interest. In Mexico, some merchants have adopted a hybrid approach that allows consumers to checkout online, print a voucher and then pay with cash at a local convenience store. 

Cashless economies have great potential, but only if we can ensure that no one is left behind. Developing easy-to-use payment options, educating communities on financial literacy, enhancing digital security and privacy and providing accessible banking options are all crucial steps in facilitating an inclusive financial environment. 

At NMI, enabling flexible, modular payment solutions is at the core of what we do. With our processor-agnostic gateway, embedded payments solutions and lucrative revenue-sharing models, we’re enabling payment professionals, banks and software platforms to grow further and push the boundaries of global payment systems.

Reach out to a member of our team to learn how NMI’s embedded payments solutions can help your business prepare for a cashless tomorrow.

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